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Gold and Silver Break Out

user profile picture Chris Martenson Feb 14, 2014
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There’s a change in the air, something is different in the markets these past few days.

Gold is now trading above its 200 day moving average and has broken out of a technically bullish ‘inverted head and shoulders’ formation.

Silver is up 11 days in a row, is above a longstanding ‘ceiling’ of $20.50 that it has bumped into 7 times over the past three months, and it has near-record shorts stacked against it on the CME which is also potentially very bullish as those shorts should begin to cover to prevent additional losses (or protect profits as the case may be).

But these moves are possibly just part of a broader move because the entire commodity complex has broken out of a mysterious two and a half year slump.  I say ‘mysterious’ because this is the first time that commodities have weakened throughout an entire cycle of money printing.

I could have also said ‘fortuitous’ because if the Fed did not have this commodity weakness going for it, there would have been far stronger international cries over the Fed’s policies and their impacts on poor people in other countries.  More on that in a minute.

And finally the stock market has broken away from trading in lockstep with the Japanese Yen/ US Dollar pair.  For quite a while if you wanted to know what US equities were doing all you had to do was see how the JPY/USD pair was trading.  The correlation was extraordinarily high.  Today and yesterday they somewhat parted ways.

Here’s the charts:

Gold has broken out over the 200 day moving average (dma) which is a very bullish sign, and it’s completed an inverse head and shoulders pattern, which is also bullish.

Of course, the past two years have been nothing but a string of disappointments in the precious metals complex so we’ll be watching this closely.  One cautious sign is I am not seeing big volumes that would indicate that the shorts are capitulating, something I like to see along with bullish breakouts to be really sure.

Silver is doing even better on a percentage basis, and still has near-record shorts on the books so there’s the potential for some really big moves here:

Those nearly 34,000 contracts took some pain today as each one is for 5,000 ounces of silver.  For illustrative purposes, assuming they are all still open and have not been closed (a poor assumption, some of them were certainly closed out today), each short contract loses $50 for each penny that the price of silver rises. 

Silver rose almost exactly 100 pennies in the past 24 hours from $20.48 to $21.47 so the total damage to the shorts was (100 x 50 x 34,000) = $170,000,000.

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Top Comment

I did enjoy my previous escapades in silver.
It is in my mind to re-establish a position and see if I can repeat the experience. (Note...
Anonymous Author by arthur-robey-2
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